The Obama administration called Israel's settlement-building programme "provocative"
and a threat to peace in one of its harshest condemnations yet of Benjamin
Netanyahu's policy.

Israel rebuffed the criticism however, by announcing plans for 3,600 homes in east Jerusalem and the West Bank on land claimed as part of a future Palestinian state.

Plans for a new 2,600-home development in Givat Hamatos – the first new settlement approved in east Jerusalem for 15 years – were given the go-ahead. Permission was also given for another 1,048 houses in several existing settlements.

It was the latest in a spate of decisions to expand settlements on the Palestinian side of the of the pre-1967 “green line” border since last month’s United Nations vote granting de facto recognition to Palestinian statehood.

On Monday, approval was given to build 1,500 homes in another east Jerusalem neighbourhood, Ramat Shlomo. The project had earlier been shelved after it provoked a diplomatic crisis with Washington when it was first announced during a visit of US vice-president Joe Biden to Israel in 2010.

Its revival prompted the state department to accuse Mr Netanyahu’s government of sabotaging the chances of a peace agreement.

“We are deeply disappointed that Israel insists on continuing this pattern of provocative action,” said spokesman Victoria Nuland on Tuesday night.

“These repeated announcements and plans of new construction run counter to the cause of peace. Israel’s leaders continually say that they support a path towards a two-state solution, yet these actions only put that goal further at risk.”

While the US has criticised settlement projects in the past, even Israeli officials admitted on Wednesday that the latest denunciation represented a sharp departure in tone from the country’s closest ally .

“These aren’t just the usual complaints. We are taking it as meaning there will be no more business as usual,” one official told the Daily Telegraph. “You can see there is a pattern towards ever-harsher condemnation. It may lead to a more laissez faire [American] approach towards UN resolutions condemning Israel.”

The US comments were echoed by the United Nations which called on Israel to cancel plans to build more settler homes, warning it could be “an almost fatal blow” to peace hopes.

The four European Union members of the UN security council — Britain, France, Germany and Portugal — are also expected to issue a joint statement this week condemning continued settlement expansion.

Israeli ambassadors in more than half-a-dozen EU states, including Britain, were summoned to hear formal complaints this month after Israel announced it would build 3,000 new homes in various West Bank settlements and begin developing a highly sensitive area called E1 that has previously been off limits because it would damage a future Palestinian state’s contiguity.

Similar complaints have been made about Givat Hamatos, which is categorised as east Jerusalem even though it is in the south of the city. Critics say it would cut off the West Bank town of Bethlehem from east Jerusalem, which Palestinians intend to be their future capital.

Mr Netanyahu said: “Jerusalem has been the capital of the Jewish people for 3,000 years.

“All Israeli governments have built in Jerusalem. This is something that my government will continue to do.”

Officials in Mr Netanyahu’s Likud party said the sudden burst of settlement decisions had been driven by a desire to woo Right wing voters in next month’s general election.

“Before the elections it is necessary to clarify one’s positions, and that is part of the matter,” an unnamed Likud minister told the newspaper Maariv. “Finally we have understood that the Likud’s constituency is in favour of construction in Jerusalem and settlements, and so it welcomes such decisions.”